Money News

Roubini: Risk of double-dip recession

Dr. Nouriel Roubini, a professor at the New York University, answers questions during the Reuters Housing Summit, in New York, February 19, 2008. REUTERS/Chip East/Files

NEW YORK (Reuters) - The U.S. economy will not recover until the end of this year, and even then, growth will remain weak and vulnerable to higher interest rates and commodity prices, economist Nouriel Roubini said on Tuesday.

Speaking at the Reuters Investment Outlook Summit, the head of RGE Global Monitor dismissed the “green shoots” theory that a rebound is imminent, saying there was a significant risk of a “double-dip” recession, with the economy expanding only slightly, then beginning to contract again.

“To me it’s more like yellow weeds,” he said, pointing to continued weakness in industrial production.

Roubini, who rose to prominence for predicting the global credit crisis, said the U.S. jobless rate, already at a 26-year high of 9.4 percent, would reach 11 percent before it begins to ease. He added that he saw few engines for growth, given that U.S. consumers are tapped out.

Given this outlook, Roubini said Federal Reserve policy makers, whom he says completely missed the magnitude of the crisis at its inception, faced an unenviable set of policy choices.

He said weak growth would allow the U.S. central bank to leave interest rates near the current rock-bottom levels for the foreseeable future. But eventually, trillions of dollars spent on unprecedented emergency measures to heal the financial system will require tighter monetary policy.

This could lead to a period of soft economic growth with high inflation, much like the 1970s.

“That’s the challenge the Fed is facing,” Roubini said.